How Do Car Loans Work?
Getting a car loan is a reliable way to purchase a car quickly and conveniently. Money3 will give you a fair go when applying for car finance. Keep reading to learn the basics of how car loans work.
A car loan lets you borrow money to buy a vehicle and repay it over time in regular instalments. Whether you’re buying from a dealer or a private seller, understanding how car loans work can help you choose the right option and avoid unexpected costs or surprises.
This guide explains the basics5, what you’ll pay, how the process works, and what lenders look for when assessing your application.
5. This information is general in nature and is for information purposes only. It is not financial advice.
How Car Loans Work
At a basic level, a car loan is simple. You borrow an agreed amount from a lender, use it to buy a car, and then repay the loan over a set period with interest and fees.
Most car loans have fixed repayments, which means you pay the same amount on a regular schedule (such as weekly, fortnightly or monthly) for the life of the loan. This can make budgeting easier, as your repayments stay consistent.
Car loans are often secured against the vehicle itself in Australia. This means the car acts as security for the loan. In some cases, for smaller amounts, unsecured options may be available, but these can come with different terms.
Example: What a Car Loan Might Look Like
To make this more practical, here’s a simple example.
If you borrow $15,000 over 5 years with a fixed interest rate, your repayments are spread evenly across the loan term. While the regular repayments may feel manageable, the total amount repaid will be higher than the original loan due to interest and fees.
This is why it’s important to look beyond just the repayment amount and consider the overall cost of the loan.
What You’ll Pay
The total cost of a car loan depends on a few key factors:
- Loan amount: The amount you borrow to purchase the vehicle.
- Interest rate: The cost of borrowing the money, usually expressed as a percentage.
- Loan term: The length of time you take to repay the loan. Longer terms can mean lower repayments, but more interest over time.
- Fees: These may include establishment fees, monthly account fees, or other charges depending on the lender.
Some loans also allow for early repayment, which can help reduce the total interest paid over time. It’s worth checking whether fees or conditions apply if you plan to pay off your loan early.
Step-by-Step: How to Get a Car Loan
Getting a car loan is usually a straightforward process:
- Submit an application
Start by completing an online application with basic details about your income, expenses and the type of loan you’re looking for. - Provide supporting documents
You may be asked to provide documents such as bank statements or identification to support your application. - Receive an application outcome
Depending on your situation, you may receive conditional approval or final approval. - Choose your vehicle
Once approved, you can select a vehicle that fits within your approved amount. - Finalise the loan
The lender completes the process and releases funds so you can purchase the car.
If you’re ready to get started, you can apply online now with Money3 - we'll give you a fair go!
What Affects Your Approval
Lenders look at your overall financial situation when assessing your application. This includes:
- Your income: This includes employment income and, in some cases, other sources such as benefits or self-employment.
- Your credit history: Your past repayment behaviour can be a factor, but it’s not the only thing lenders consider.
- Your expenses: Regular living costs and existing financial commitments.
- Your ability to repay: Whether the loan is manageable based on your current situation.
It’s important to remember that lenders consider the full picture. Even if your situation isn’t perfect, there may still be options available depending on your circumstances.
Types of Car Loans
There are a few common types of car loans to be aware of:
- Secured car loans: The vehicle is used as security for the loan, which can influence the loan terms.
- Unsecured loans: No asset is used as security, which may result in different conditions.
- Dealer finance: Finance arranged through a car dealership.
- Lender finance: Finance arranged directly through a lender or broker.
Each option has its own features, so it’s worth comparing what suits your needs.
Pros and Cons of Car Loans
Pros
- Spread the cost of a vehicle over time
- Access a car sooner without needing full upfront payment
- Flexible loan terms and repayment options
Cons
- Interest increases the total amount repaid
- Ongoing financial commitment
- Fees and charges may apply
Ready to Take the Next Step?
Understanding how car loans work is the first step. The next is finding a car loan option that suits your situation and budget.
5. This information is general in nature and is for information purposes only. It is not financial advice.
1. Subject to verification, suitability and affordability
Car Loan FAQs
Yes, it may still be possible to get a car loan with bad credit1.
Lenders often look at your overall financial situation, including your income, expenses, and ability to repay the loan.
While your credit history is a factor, it’s not always the only consideration, and options may be available depending on your circumstances.
The amount you can borrow depends on your individual situation. Lenders consider factors such as your income, expenses, existing debts, and overall ability to repay the loan. The type of vehicle and loan terms may also influence the approved amount.
With money3, our car loans run from $2,000 up to $75,000, depending on the affordability of the loan.
Not always. Some car loans may be available without a deposit, depending on your financial situation and the lender’s criteria.
However, having a deposit can reduce the amount you need to borrow and may help lower your repayments.
With Money3, no deposit is necessary.
Applying for a car loan may involve a credit check, which can be recorded on your credit file. Multiple applications in a short period may have an impact, so it’s a good idea to apply carefully and only when you’re ready to proceed.
If you miss a repayment, you may be charged fees and your credit history could be affected.
It’s important to contact your lender as soon as possible if you’re having trouble making repayments, as they may be able to discuss options based on your situation.
5. This information is general in nature and is for information purposes only. It is not financial advice.
1. Subject to verification, suitability and affordability
More Options to Consider
Car Loans
Money3 car loans go up to $75,000 with fast pre-approvals and no deposit required.
Loans for Used Cars
If you are looking for pre-approval first or have already found a used car that you wish to buy, Money3 could help with used car finance available up to $75,000.
Motorbike Finance
Bike finance is available from Money3 up to $75,000 and no deposit is needed. Whether you are after a motorbike, scooter, dirt bike or something else. We'll give you a fair go!
Campervan Finance
Whether it is a camper trailer, campervan, motorhome or something else; Money3 offers finance up to $75,000 to help get your dreams on the road.
Boat Finance
For all your watersport and boat financing, Money3 offers finance up to $75,000. We'll give you a fair go!
Loan Repayment Calculators
Unsure how much you could afford to borrow? Use our calculators to get an idea of your repayments before you apply for a loan with us.
1. Subject to verification, suitability and affordability
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The Best Time to Buy A Car
Timing your car purchase can lead to significant savings. From EOFY and plate clearance sales to demo car discounts, knowing when to buy a car could save you money.
How Can I Qualify for a Car Loan?
If you’re looking to get a car loan, it may be beneficial to learn how you can qualify for one. Money3 has fixed loan criteria. However, our loan terms are flexible to suit your needs.
